AIG moves to block BofA settlement

American International Group is continuing its quest to upend an $8.5 billion settlement between Bank of America and a group of mortgage securities investors.

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By MICHAEL CORKERY

capecodtimes.com

By MICHAEL CORKERY

Posted Feb. 6, 2014 at 2:00 AM

By MICHAEL CORKERY

Posted Feb. 6, 2014 at 2:00 AM

» Social News

American International Group is continuing its quest to upend an $8.5 billion settlement between Bank of America and a group of mortgage securities investors.

AIG's lawyers filed papers Tuesday in New York State Supreme Court seeking to delay final approval of the settlement between Bank of America and a group of 22 investors.

Justice Barbara Kapnick approved most of the settlement last Friday, but allowed some of investors' claims against the bank to stand.

AIG argued in court papers filed Tuesday that the issues raised by Kapnick needed to be aired before a final signoff was entered.

In a minor victory for AIG, the new judge overseeing the case, Justice Saliann Scarpulla scheduled a hearing on the issues for Feb. 19, according to lawyers in the case.

Kapnick moved this week to the Appellate Division of the Supreme Court.

At issue in this case are 530 mortgage-backed securities involving troubled loans issued by Countrywide Financial.

A group of the largest investors in the bonds agreed to settle their claims with Bank of America, which bought Countrywide in 2008.

But another big investor in the bonds, AIG, refused to sign the pact, arguing that settlement was a fraction of the overall losses. AIG also argued that the trustee for the bonds, Bank of New York Mellon, shirked its responsibility in pushing for more money in the settlement.

Kapnick, in her ruling last Friday, said Bank of New York acted reasonably in most instances during the settlement process, but she also noted that the bank had failed to adequately investigate certain claims related to mortgage modifications.

The trustee has argued that the mortgage modification claims have no merit.

But one of the Countrywide bond investors, Triaxx, has argued that the claims could potentially affect $31 billion in loans that were modified to allow borrowers to stay in their homes.

Triaxx's lawyer have said that the terms of the mortgage-backed bonds clearly stated that if certain loans were modified, then the bank was obligated to repurchase them from investors.

To settle these outstanding claims, Bank of America may have to pay investors a larger settlement, or the bank could fight them in court. Either way, it means the case could drag on for many more months.

Another big issue left unsettled, according to AIG's lawyers, is how much each investor will be compensated from the $8.5 billion settlement.

"In the interest of fairness, efficiency and judicial economy, these open questions all should be resolved," AIG's lawyer Mark Zauderer wrote in the court filing Tuesday.

Spokesmen for Bank of New York and Bank of America declined to comment on AIG's court motion.